Mobile Expectations

Indonesia

Economic News

22 Jul 2010
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On November 30, PT Mobile-8 Telecom (Mobile 8), Indonesia's fourth largest cellular operator, listed 3.9bn shares, or 19.91% of its total placed capital, on the Jakarta and Surabaya stock exchanges.



After a road show that travelled to Singapore, Hong Kong, Malaysia and Europe, the initial public offering (IPO) of Mobile 8, a Code Division Multiple Access (CDMA) based provider, was reportedly seven times oversubscribed. The listing, with initial shares priced at Rp225 ($0.0248), raised Rp877.5bn ($96.4m).



Mobile 8, established in 2002 but operational for three years now, plans to aggressively expand the coverage of its network. "With 480 Base Transceiver Stations (BTS) our network is now covering 70% of Java, Bali and Madura" Hidajat Tjandrajaja, the president director of Mobile 8, told OBG in late November.



With the proceeds of the IPO and other financing sources, Mobile 8 will expand throughout the country, initially to Sumatra, then to East and West Kalimantan, North and South Sulawesi and Lombok. "By the end of next year, we hope to increase the number of BTS to 1900, covering around 80% of the addressable market compared to the 40% we now cover," Tjandrajaja continued.



By doing so, the company, with its subscriber base of 1.75m customers, hopes to expand to 4.1m by the end of 2007, and then to 10m by 2010.



In the meantime, the share price has risen by a third to around Rp300.



With an estimated market penetration of only 21.1% of more than 220m people, there is ample room for growth in the cellular telephone sector. This has been reflected in outstanding results this year.



Bakrie Telecom, another CDMA-only based operator, recorded a net profit of about Rp52bn ($5.7m) during the first 8 months of the year rebounding from a loss of Rp112bn ($12.3m) in the same period last year. Meanwhile, Telkom, the country's largest company in terms of value, saw its profits increase by 62% during the first nine months of 2006.



Only Indosat has experienced lower profits, but these were mainly due to increased expenditure aimed at protecting and regaining the market share from the aggressive young players in the market.



In this increasingly competitive environment, companies are developing value added services, to increase and maintain profits.



While the traditional players are aiming high with expensive 3G frequencies, the smaller CDMA based players are using much cheaper technology.



Anindya Bakrie, CEO of Bakrie Telecom, recently told OBG, "we are using CDMA which is more efficient in terms of use of the spectrum, and which requires much lower investment costs".



Both Mobile 8 and Bakrie Telecom have started providing internet access via the Evolution Data Optimised (EvDO) protocol, which gives mobile users unlimited internet access in areas with coverage, using CDMA 1x standards.



With limited infrastructure in place, prices of internet in Indonesia are among the highest in the world, and with a subsequent low internet penetration, the opportunity for the new players in the Indonesian telecommunications sector indeed lies in providing the last mile access to the end user.



"While some companies paid up to $200m for their 3G frequency alone, and another $40-80m for the roll-out, it cost us only $200,000 for the whole roll-out," Tjandrajaja told OBG. "This EvDO network will enable end users to access the internet at a typical speed of 300-500 kb per second for an affordable price," he continued.



Indeed, some observers believe that the Indonesian mobile market, dominated by pre-paid users and suffering under strong income disparities, may not yet be ready for expensive added value services.
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